The USD is steady, oil prices are firm, equity markets are up, and US yields rise on rate optimism. The USD struggles to find demand, while the JPY remains under pressure, heading towards a near four-decade low. The S&P 500 & Nasdaq set a new record high close. Asian equities are heading for their longest stretch of gains since May. France's CAC 40 index rose on anti-national rally parties against the far-right group from achieving an absolute majority. Fed Chair Powell said yesterday that inflation is getting back on a downward path, saying that the latest price data offers signs that the US is back on a disinflationary path. In Europe, the ECB is widely expected to cut domestic interest rates again in September and December, according to a Reuters poll. Elsewhere, oil prices hold on to two-month highs due to Mid-East concerns and a drawdown of crude stockpiles. Bitcoin remains under pressure, down 2%, retesting $60k, while Gold & Silver prices rebound in early trading. In focus today, US ADP Employment, Initial Jobless Claims, ISM Services PMI, FOMC Minutes, ECB's President Lagarde Speech, and CAD Import & export data will help provide intraday direction to currency markets.
In other news. Biden is under new pressure to quit the race as Democratic disquiet spreads. The EU takes aim at China's Temu and Shein with a proposed import duty. The French Left and Centrists pulled candidates from the run-off in an attempt to block the far right. Hurricane Beryl becomes the earliest category-five storm on record. Turkish inflation cools for the first time in 8 months, CPI increases 71.6% in June. Tories warn of Labour landslide on the final day of election campaigning. The US looks at all tools to respond to Canada's digital services tax. Israel conducts new strikes on Gaza; families seek shelter after an evacuation order.
In currency markets. The JPY slips to fresh lows against the USD as the market 'challenges' Japanese authorities to act. A Reuters poll suggests the Czech crown & Polish Zlotty are expected to strengthen in the next six months, while the Hungarian forint is expected to remain under pressure. ZAR gains as Ramaphosa's new government takes shape. CNY & Asian currencies are flat on average against the USD. Trading currencies are mixed, with JPY weakening 0.25%, NZD down 0.1%, AUD, MXN, SEK & CHF up 0.1%, NOK gaining 0.2%, and ZAR rallying 0.65% against the USD.
In commodity markets. Oil & Natural Gas prices firm 0.1%, Gold & Copper prices strengthened by 1%, Silver prices rallied by 2.5%, and Wheat and Soybean prices gained by 0.4%.
CAD holds steady after rebounding from two-week lows, with the loonie finding support from strengthening oil prices and less hawkish comments from Fed Chair Powell yesterday. Domestically, Tuesday saw CAD S&P Global Manufacturing PMI in June remain in bearish territory at 49.3, showing deterioration in manufacturing activity, extending a record-setting run of contraction in the sector. The intraday focus will be on US jobs, PMI, and Fed minutes to drive intraday direction ahead of Thursday's July 4th holiday. Our bias remains to buy USD/CAD dips with the prospect of more BoC rate cuts into Q3, which is expected to keep pressure on the loonie.
EURCAD edges higher as markets settle, and investors' confidence resumes that France's Far-Right party will not achieve an absolute majority in Sunday's run-off elections.
EUR firmed towards 1.0750 following the Fed's dovish comments, shifting the focus to the US Jobs and Fed Minutes. The Euro continues to rebound from two-week lows as the USD weakens following the Fed's comments that inflation is back on a downward path. Domestically, eurozone HCOB Services and Composite PMI both gained in June, exceeding expectations. Investors expect the ECB will take a cautious tone, holding rate cuts until September as inflationary pressures continue. Intraday US data will drive intraday direction.
GBPEUR holds steady despite the prospect that the conservatives are facing a defeat in tomorrow's UK general election.
GBP extends gains to retest 1.2700 ahead of key US data and the Fed minutes. The pound appears to be resilient to political uncertainty in the UK and continues to benefit from the weakening USD, fueled by the Fed Chair's comments. Domestically, both the composite and services PMI data in June grew, beating expectations. In the FT, Tories warned of a Labour landslide on the final day of election campaigning, and Sunak ally Stride says it 'highly unlikely' that polls are wrong. Intraday will focus on the US data to drive direction, but volatility may be capped heading to the July 4th US holiday and the UK election.
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